$A gains as Yellen expresses labour ‘surprise’

The Australian dollar has gained nearly a cent overnight and the local share market is poised to open stronger after US Federal Reserve chair Janet Yellen said the central bank remained committed to gradually trimming its stimulus program. The move comes despite Dr Yellen admitting she was “surprised" by weakness in recent jobs data.

The local currency is up 1 per cent to US90.36¢ at 7:13AM AEDT during the New York trading session, while the SPI futures market is pointing to a gain of 0.8 per cent or 40 points for the S&P/ASX 200 index on Wednesday.

“I was surprised that the jobs report in December and January – the pace of jobs creation was running under what I had anticipated – but we have to be very careful not jumping to conclusions in interpreting what those reports mean. There were weather factors; we have had unseasonably cold temperatures that may be affecting economic activity in the jobs market and elsewhere.

“I was surprised that the jobs report in December and January – the pace of jobs creation was running under what I had anticipated but we have to be very careful not jumping to conclusions,” Federal Reserve chair Janet Yellen says.
Photo: Bloomberg

“The committee will meet in March. We will have a broad range of data to look at including additional employment report and I think it is important for us to take time out to assess just what the significance of this is," she said.

Dr Yellen pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps" and signaled the bar is high for a change in that plan.

She added that low interest rates for longer would be required to ensure the recovery had taken hold.

“Because we have a weak economy, with some sense plentiful savings relative to investment, the fundamentals call for interest rates to be low and we are allowing them to be low and fostering a low interest rate environment to achieve those important goals that Congress has assigned to us."

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She also said financial market turmoil doesn’t pose a major risk to the outlook for the US economy and repeated the Fed’s statement that asset purchases aren’t on a “pre-set course."

In December and January, the Fed decided to reduce its $US85 billion ($94 billion) a month in purchases of US treasuries and mortgage-backed securities by $10 billion a month. The Fed’s QE injection now stands at $US65 billion a month. If the Fed were to continue trimming at $US10 billion per month, the tapering program would be finished by July.